Decades of long relationships with customers and manufacturers have placed Diversified Security Solutions in position to be a competent player in a growing market

Services
Security Systems Services
(DVS - AMEX)

Diversified Security Solutions

280 Midland Avenue
Saddle Brook, NJ  07633
Phone: 201-794-6500

James E. Henry
Chairman and
Chief Executive Officer

Interview conducted by:
Diane Reynolds, Co Publisher

CEOCFOinterviews.com
March 2003

BIO OF JAMES E. HENRY, CHAIRMAN, CEO

James E. Henry, Chairman and Chief Executive Officer, co-founded Henry Bros. Electronics, Inc.,(HBE) a family business, as a technician from 1968-1978, servicing and installing CCTV, audio and radio communications systems, and then as a systems engineer from 1978 through 1989.  When HBE was sold to Communications Group, Inc. in 1985, he remained with the company and designed, integrated and installed extensive and sophisticated communication and control systems in microwave, laser, fiber optic and infrared technologies for larger corporations, utilities, and government agencies in the New York City metropolitan area.  Mr. Henry and co-founder Irv Witcosky arranged for the repurchase in 1989 of Henry Bros., which became a subsidiary Diversified Security Solutions when the parent company was established in 1989.  Mr. Henry holds a B.S. in Electrical Engineering from the University of New Hampshire.

Company Profile:

Diversified Security Solutions is an established provider in the electronic security industry, specializing in integrated systems, emergency preparedness and threat assessment. Diversified Security Solutions has three wholly owned subsidiaries HBE, Viscom and Technical Services Division.

Diversified Security Solutions offers security systems integration for buildings, airports, and the transportation industry.

DSSI had its IPO in November 2001 and established a base of operations on the West Coast in 2002. It also has regional offices in Dallas, Texas, Fullerton, California and Phoenix, Arizona and employs approximately 102 professionals.

CEOCFOinterviews: Mr. Henry, what kind of security solutions does Diversified Security Solutions provide and to whom do you provide them?

Mr. Henry: “The operative word there is solutions and not products. We are very much a security solutions provider, known in the industry as a systems integrator. A security systems integrator or solutions provider is involved in the actual technologies and the electronic products and providing clients with installation and commissioning the mapping of the systems, the programming and in our case, providing the warranty support for the system after the installation and ongoing maintenance after the sale. Our solutions are not limited to a particular product focus like closed circuit television or access control or badging or perimeter detection systems.  We are literate and seasoned in all of those disciplines including the newer ones of biometrics and digital video recording systems, so we provide a cocktail of those technologies depending on the application that the customer has.”

CEOCFOinterviews: Security has become a big issue in buildings and airports, has this affected your business?

Mr. Henry: “Security for transportation and property management are of our two focus markets. We’ve been providing security for the Silverstein property portfolio since the early 80’s.We are now seeing focus of building managers and property managers who are installing high-end closed circuit televisions systems and access control and turnstiles to create a secure side and public side within the lobbies of their buildings. This is to provide a level of control and security for who enters their buildings between the outside of the building and the tenant’s space.

We have been doing work with the MTA in New York and Port Authority for decades, so our seasoned experience working there is complimented by our expertise in the technology that they are currently deploying.  It has been a great foundation to build on. Going forward, we expect much of the homeland security money, which is targeted to those types of agencies, and will be forthcoming in the next couple of years.”

CEOCFOinterviews: Are you looking any global opportunities or are you focused strictly on the United States?

Mr. Henry: “We do not see any huge percentage of focus of our resources on international business as we anticipate the growth opportunities here in the domestic US to be quite substantial.”

CEOCFOinterviews: What allows you to be ahead of the game and know how your new technologies will be received?

Mr. Henry: “We have close partnering relationships with manufacturers who often seek out our guidance on how they are developing their systems because of our special field experience and how these applications will actually be deployed in the field and utilized by end users. That enables us to keep integrating new technologies into existing systems as they mature going forward as well as knowing more than anyone else how well they will be received in the field because we have a lot of hands on with those technologies prior to deployment.”

CEOCFOinterviews: Are you adequately staffed to provide the services and give the top-notch services that you always expect to in the company?

Mr. Henry: “Yes we are and we have been pretty good at forecasting the future. We’ve grown quite substantially over the course of the past year and a half or so, in round numbers a staff of about 45 people to over 100 today and we are continuing to expand.  We’ve added offices in Los Angeles, California, Phoenix, Arizona to our original offices in Dallas, Texas and Saddle brook, New Jersey. In addition to having the additional labor resources in those regions we cross-pollinate communications and expertise between the offices. Therefore, we can draw upon the additional back up and expertise of off site offices to assist in other and opposite offices when the need arises. That additional depth is well received and well appreciated by our customer base knowing that there is a lot of ‘go to’ people internal to our company before we reach a point of where we have to reach out to a manufacturer for support in a particular problem.”

CEOCFOinterviews: You have been a little aggressive in the acquisition area.  How is that going?

Mr. Henry: That is going quite well.  We are in a good position with regards to being able to assess and consummate growth by acquisition and merger by other companies. Having been in this business for 52 years when we came out and went public in November 2001, we already had extensive working relationships with literally hundreds of other system integration companies like ourselves around the country through organizations to which we collectively belong. We are one of the few pure systems and publicly owned system integration companies out there, which has led to an interest by a number of companies that we have worked with over the years. They want to participate with us in our growth and our public endeavor. Therefore, the amount of familiarity and due diligence one would normally need to do with a perspective merger or acquisition candidate is shortened by the benefit of having worked and knowing these guys for decades. The learning curve of making sure we have the same business culture and understanding that they are synergistic to our business endeavors and plans is a little easier to accomplish.”

CEOCFOinterviews: At the end of your 3Q that ended in September, you had about three acquisitions under your belt, which added income to the company.  Do you see that leveling off or a continuing growth?

Mr. Henry: “That will continue to grow. We see top line growth obviously by virtue of both growth, internal and acquisition.  At the same time, we are building the infrastructure and properly digesting that growth into the main company and expanded business going into 2003 and 2004. We feel that while the economy has still been in a down turn or low for the last couple of years, the threat of Washington spending money in homeland security has been more bark than bite since 9/11. The rah, rah public back then was once we get into January of 2002 it will be money from heaven for this industry.  Nothing moves that quickly especially the Federal Government, not only is hard to move that quickly they have been establishing new agencies within the government.  We recognize the opportunity of what is coming; we believe we are putting a good fundamental foundation in place of resources and infrastructure to be able to handle that business as it comes. We are pleased that in spite of the fact a lot of the homeland money hasn’t come yet, we have still enjoyed significant growth through a difficult economic time, so, we feel that once the economy comes back as well as the money starting to flow from homeland security this will further fertilize our growth opportunities.”

CEOCFOinterviews: What do you feel has been the biggest change that has benefited this company since you took over as CEO?

Mr. Henry: “Well, the reality was I joined the company in 1953 when I was born.  All kidding aside, it was a family owned business, my father and his two brothers started the business in commercial two-way radio communications and television. However, that was before security was an issue. I worked often times when I was little and through grade school and junior high school, I got familiar with the business, the technology and have worked within the family owned business full time since 1978 when I got out of college. The period from 1978-1989 was an interesting one as far as my education because within that period of time we were acquired by a public company in the telephone industry. We reacquired that integration portion of that in 1989 and that gave us the fundamental business expertise to properly grow the business through the 90’s and position ourselves for the IPO of 2001. 

Through all of that period of time, there are some fundamentals that have remained exactly the same and there are some that are day and night. Our business was founded on the culture of customer first, training of people, loyalty within the staff, low turn over and maintaining a long-term respectful relationship with both product suppliers and customers. Whether that business happened to be in the two-way radio domain in police and fire, we were in the 50 or 60’s or in the integrated security solutions of access control and video or those principles of a service integration of solution business have never changed. What we sell is obviously day and night different in the year 2000 than it was in the previous decades.

We have learned never to be complacent in a particular technology that it might be a staple product today because tomorrow will bring something new. The customers don’t just associate us with just a product, they associate us with a service solution, so we continue to look forward to forecast the best we can which technologies will likely become the commonly used products of the future and in advance get trained and experience within them. We were particularly pleased with our judgment in the 80’s to get very literate with fiber optic systems before they became popular. We have been really advanced with regards to our literacy in the digital video recording systems in the early 90’s before that hit the radar screen and we’ve been very intimately involved with the biometric industries that we now see being the staple product. On the product side, the only thing that is constant is change. On the business relationship side, those principles that worked in 1950 are equally or even more important that they were back then.’

CEOCFOinterviews: In closing, what should potential investors consider when looking at your company?

Mr. Henry: “I think you would want to look at three things. First, security in general is a market that is clearly been growing through both boom times and recession times for several decades now. Secondly, Diversified is focused on vertical markets within security that have been impacted on 9/11 this is not something that we have just jumped into.  These are markets that we have always been into and have great seasoning and experience within those vertical markets in aviation, transportation and multi tenant office buildings and manufacturing. We have over 30 years experience working in that space. Those areas that we are in particularly are aviation and transit. These areas that are being targeted for homeland security. 

I think we are in the right place, we have the right foundation, and the right history and we are in the market that has proven to be immune to recession and downturn.   Thirdly, if you look at one of the industries circulation that track our company’s performance, Malon’s Security Investing Journal has put a publication out in January, 2003 where he assessed the stock performance of security systems integrators or actually by sector and he identified at 32% drop as an average for some 17 companies that he was tracking. From where we came out with our IPO in November of 2001, we are within 5% of our initial offering and still as I said, most of the money has not come into the market within the area we are focused on, which is aviation and transit. I attribute our better performance in this very tough time in Wall Street to our focus and history. We are not a new comer to this business, we have decade long relationships with both the customers that are going to be the focus of the funding from Washington and the manufacturers of the products that will be used with these systems. Therefore, you add all of that together, I think we are doing the right thing and we have done the right thing and I believe that we are a good pivotal substantial, competent player in a growing market.”

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